Transformation of Wireline Access Networks Requires Smarter Solutions

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1 Ovum TMT intelligence Transformation of Wireline Access Networks Requires Smarter Solutions Ovum survey identifies key challenges and solutions Sponsored by

2 Contents About the authors Summary... 3 Key highlights...3 Access network transformations are under way... 4 QoE is a key competitive differentiator...4 Next-gen technologies are fueling bandwidth upgrades...5 Wireline access network transformation... 6 Challenges throughout the transformation stages...6 Planning stage...6 Implementation...7 Operations and management...9 Use of partners will increase... 9 Usage expected to increase sharply for ongoing network management, optimization, QoE, and analytics...9 Recommendations for service providers Solve challenges externally and internally...11 Julie Kunstler Julie Kunstler has over 25 years of experience in the communications components, equipment, and software industry. She is responsible for Ovum s coverage of the wireline broadband access component, equipment, and software markets, closely following technology developments and subsequent effects on the vendor ecosystem. Julie is paying close attention to SDN/NFV and its impact on wireline broadband access. Julie has worked as an executive, investor, and board member for communications companies. Having served in these numerous roles, Julie understands what it takes for new communications technologies to be deployed in large numbers and across multiple geographies. Julie brings her knowledge of the pressure on telcos to offer bandwidthhungry applications along with the margin requirements of component vendors. Julie is a regular participant at industry events around the globe. Appendix Methodology...12 Further reading...13 Copyright Ovum All rights reserved. The contents of this product are protected by international copyright laws, database rights and other intellectual property rights. The owner of these rights is Informa Telecoms and Media Limited, our affiliates or other third party licensors. All product and company names and logos contained within or appearing on this product are the trademarks, service marks or trading names of their respective owners, including Informa Telecoms and Media Limited. This product may not be copied, reproduced, distributed or transmitted in any form or by any means without the prior permission of Informa Telecoms and Media Limited. Whilst reasonable efforts have been made to ensure that the information and content of this product was correct as at the date of first publication, neither Informa Telecoms and Media Limited nor any person engaged or employed by Informa Telecoms and Media Limited accepts any liability for any errors, omissions or other inaccuracies. Readers should independently verify any facts and figures as no liability can be accepted in this regard - readers assume full responsibility and risk accordingly for their use of such information and content. Any views and/or opinions expressed in this product by individual authors or contributors are their personal views and/or opinions and do not necessarily reflect the views and/or opinions of Informa Telecoms and Media Limited. Kamalini Ganguly Kamalini is a senior analyst with Ovum s Service Provider & Markets practice, which provides an industry perspective across the fixed, mobile, and integrated telecoms marketplace. Looking towards the strategic horizon, the team assesses the challenges facing service providers and advises on how they will evolve and how they should respond. Specifically, Kamalini tracks and analyzes the global fixed voice and broadband market, overseeing the forecast for DSL, cable, and FTTH/B broadband subscriptions for more than 67 countries. She provides a perspective on the future outlook for the fixed voice and broadband business and the changing role of service providers in the ecosystem. She examines the business case for the path to next-generation broadband, including best-practice commercialization strategies across fiber, copper, and Wi-Fi. She also advises service providers on the evolution of their fixed network and competitive bundling and pricing strategies. 2 TMT intelligence informa 2016 Ovum. All rights reserved.

3 Summary Key highlights QoE (quality of experience) is the primary driver for wireline access network transformations. Competitive pressures are forcing service providers to compete on service bundles and downstream speeds. Capex/ opex savings are taking a backseat to subscriber requirements for bandwidth and services. For this report, Ovum interviewed 50 wireline access network service providers around the world to understand their priorities for network transformations, along with their challenges and use of support partners. The service providers included both telco and cable operators. Key findings across the 50 service providers include: Network upgrades are being driven by bandwidth upgrades to improve QoE. Customer churn is costly and wireline access service providers are operating in increasingly competitive environments, including competition from OTT services. While network transformation cost is a concern, it is not a key driver at this time. The focus is on subscribers both residential and business and the ability to offer services faster, including cloudbased service provisioning. Network transformation presents several challenges, such as choosing the best technology strategy and understanding its impact on future upgrades, identifying new revenue opportunities, and meeting rollout targets and network optimization goals. Many of the cited challenges can be mitigated through enhanced vendor relationships, improved tools, and targeting internal talent gaps. Service providers expect to increase their already significant usage of partners, such as network equipment vendors and IT services vendors. However, growth will be strongest for telecom software vendors and business/management consultants. Key findings segmented by service provider type and region: Integrated service providers, those with both wireline and wireless networks, consistently rated their challenges higher than service providers that are wireline only. Even though the survey focused on wireline access transformation, the challenges are more complex when supporting and transforming different types of networks at the same time. Cable operators often rated challenges differently than the telco operators. For example, they cited greater challenges around making the business case for transformation. Conversely, cable operators rated a number of implementation challenges lower than their telco counterparts, such as lack of accurate databases. Asia-Pacific's service providers rated concerns regarding the impact of technology choices on future upgrades lower than service providers in other regions, possibly reflecting the prevalence of national broadband plans in China, Australia, New Zealand, and Singapore. Often these national broadband plans set technology upgrade directions and provide funding, diminishing the concerns facing individual service providers Ovum. All rights reserved. TMT intelligence informa 3

4 Access network transformations are under way QoE is a key competitive differentiator Service providers are transforming their wireline access networks to support competitive differentiators. According to the survey, QoE is the highest-rated competitive differentiator, followed by multiplay service offerings and downstream speed, as shown in Figure 1. Conversely, new applications and services, such as 4K and virtual reality gaming, are rated lower at this time. Figure 1: Competitive differentiation ratings Quality of experience/service Multiplay service offerings Downstream speed Size of subscriber base Customer service/premium help-desk support Price of service/bundle Upstream speed 4K UHD content Virtual reality gaming = Least important 5 = Most important To attain their competitive differentiators, service providers are undertaking wireline access network upgrades to increase bandwidth speeds and enable faster service deployments. The movement to all-ip networking and adoption of SDN/NFV supports faster service provisioning and going green. Figure 2 summarizes the key reasons for network transformation today and in three years; SDN/NFV shows the largest increase in importance between the two time periods. Figure 2: Major reasons for network upgrades based on competitive differentiators In 3 years Now Bandwidth upgrades Faster service deployments for business customers IP transformation Faster service deployments for residential customers Going green SDN/NFV = Least important 5 = Most important 4 TMT intelligence informa 2016 Ovum. All rights reserved.

5 Next-gen technologies are fueling bandwidth upgrades Wireline service providers are upgrading their networks to support higher-bandwidth service offerings. Next-gen broadband equipment is shipping for fiber, copper, and coax. Next-gen PON fiber deployments are already happening in the US, China, Japan, Singapore, and Hong Kong. We expect to see significant shipment ramps of 35b (also known as VDSL VPlus), G.fast, and DOCSIS 3.1 in Western Europe and North America as telco and cable operators continue to upgrade their networks to support higher-bandwidth services. According to Ovum's wireline broadband equipment forecast and analysis: Next-gen PON equipment revenues will increase to 40% of total PON revenues in G.fast equipment revenues will represent 22% of total copper-based broadband equipment revenues in Within VDSL, 35b/VPlus-enabled linecards will be standard in CMTS DOCSIS 3.1 revenues will exceed 80% of total CMTS revenues by The significant shift to next-gen technologies is highlighted in Figure 3. Figure 3: Broadband technologies, next-gen vs. existing, 2014 versus 2021 Next-gen fiber Existing fiber Next-gen copper Existing copper Next-gen coax Existing coax $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 Wireline access equipment actual and forecast ($m) Given investments in wireline broadband technologies, Ovum expects downstream speeds to increase as shown in Figure 4. Ovum forecasts that by 2020 almost 20% of worldwide households will receive wireline broadband speeds of 100Mbps or more. Yet almost 50% will still be below 30Mbps speed tiers, leaving them vulnerable to poor QoE. We discuss the key challenges to network transformations and upgrades next. Figure 4: Consumer fixed broadband speed-split forecast until 2020 <10Mbps 10 30Mbps Mbps 100Mbps+ 60 % of households globally Ovum. All rights reserved. TMT intelligence informa 5

6 Wireline access network transformation Challenges throughout the transformation stages According to the survey, service providers are facing numerous challenges in all stages of access network transformation planning, implementation, and operations/management. Many challenges are magnified for integrated operators due to the complexities of managing and upgrading different networks. Figure 5 summarizes highly rated concerns across the network transformation process. The average rating of challenges was slightly higher in the operations/management stage. This matches with service provider plans to increase usage of partners for ongoing network management and operations, discussed later in this white paper. Figure 5: High-level comparison of top challenges planning vs. implementation vs. operations/management Challenge ratings increase throughout transformation process Choosing the right technology Building cross-program business case Identifying new and large revenue opportunities Doing it right the first time Meeting customer activation targets Meeting internal rollout targets Managing quality control of subcontractors Implementation stage Keeping legacy network up-to-date Preventing service interruptions when updating software Reaching capacity optimization Identifying issues that impact QoS Operations/management stage Planning stage Planning stage Service providers responded to questions concerning planning for wireline access network transformations and upgrades, covering a variety of planning areas, such as selecting technology, understanding vendor solutions, developing transformation business cases, beginning the transformation process, and identifying potential synergies. Figure 6 highlights the 10 highest-rated challenges during the planning process. Choosing the right technology and technology strategy was rated the highest. Figure 6: Top 10 challenges in transformation planning stage Choosing right tech and strategy Building cross-program business case Identifying new and large revenue opportunities Preparing business case Identifying key areas for opex savings Understanding synergies Securing accurate network data Planning new service launch Understanding how solution fits upgrade strategy Understanding impact on future upgrades = Least important 5 = Most important 6 TMT intelligence informa 2016 Ovum. All rights reserved.

7 There were few regional differences within the top 10 challenges. However, there were significant regional scoring differences for many other transformation planning challenges, as shown in Figure 7. National broadband plans in many Asia-Pacific countries may help to reduce planning challenges given government directives and support, compared with European countries. Figure 7: Selected transformation planning challenges, Europe vs. Asia-Pacific Europe Asia-Pacific Obtaining buy-in support from other program owners Understanding synergies Building cross-program business case Finding external resources Finding internal resources Reaching justification Obtaining external views from independent parties Obtaining external views from other SPs Understanding impact on future upgrades = Least important 5 = Most important Integrated service providers rated some challenges higher than wireline and cable operators did, as shown in Figure 8. They need internal project management expertise for multiple networks. In addition, technology choices and strategies for one network may impact FMC (fixed-mobile convergence) plans. Figure 8: Selected transformation planning challenges, by service provider type Wireline-only Integrated Cable Need strong internal project management expertise Choosing right technology and strategy = Least important 5 = Most important Implementation Service providers highlighted many challenges during the implementation stage of network transformation. One key area is the lack of assistance to support implementation. All of the following areas of assistance were highly rated by the service providers: more skilled in-house personnel increased management focus fewer or no regulatory issues accurate network and customer databases Ovum. All rights reserved. TMT intelligence informa 7

8 The survey questions also focused on the use of tools and automated end-user service activation; meeting scaling, rollout, and marketing targets; and resources. Many challenges were highly rated, with scores that are within a few decimal points of each other. These top-rated implementation challenges are shown in Figure 9. Figure 9: Highly rated challenges in transformation implementation stage Developing realistic scaling targets internally Meeting marketing announcements regarding services Managing subcontractors ensuring quality control Meeting internal rollout targets Meeting customer activation targets Doing it right the first time Finding and using best tools Finding efficiencies European service providers rated the need for accurate network and customer databases higher than service providers in other regions, possibly reflecting complexities created by recent mergers and acquisitions. Operators are using or have plans to use cloud-based service provisioning to support faster service and customer activation, reduce capex, and improve the quality of the activation process. More than 55% of the surveyed service providers will be using cloud-based service provisioning within 18 months, representing a 40% increase from today, as shown in Figure 10. Figure 10: Drivers and use of cloud activation during network implementation stage Faster service activation Faster customer activation Opex savings Cloud-based service provisioning usage will increase by 40% over 18 months Improving quality of activation process 8 TMT intelligence informa 2016 Ovum. All rights reserved.

9 Operations and management Service providers were asked questions pertaining to operations and management for wireline access network transformations and upgrades. The questions covered a number of topics, such as installing new software releases, ongoing operations and management, and managing newly transformed networks along with yet-to-be-transformed networks. Service providers highlighted many challenges or issues during the operations and management stage of network transformation, as shown in Figure 11. The most highly rated challenge was keeping legacy networks up-to-date, followed by preventing service interruptions while installing new software and reaching capacity optimization. Figure 11: Top eight challenges or issues in transformation operations and management stage Keeping legacy network up-to-date Preventing service interruptions while installing new software Reaching capacity optimization Identifying issues that impact QoS Creating unforeseen problems Correlating customer complaints with network performance Timely implementation Provisioning higher-speed tiers = Least important 5 = Most important While there were minimal differences in the ratings on a regional basis, the integrated operators often rated the challenges or issues more highly than the nonintegrated telcos and cable operators. Integrated operators are managing both wireline and wireless networks so any transformations or upgrades increase the complexity and the number of networks to keep up-to-date. Use of partners will increase Usage expected to increase sharply for ongoing network management, optimization, QoE, and analytics The interviewed service providers are using partners to support many access network functions and transformation. More than 80% of the service providers are using partners to support network implementation and rollout. Key reasons for using partners include: meeting transformation deadlines freeing up internal resources reducing opex. While service providers plan to increase their usage across all categories, significant increases were seen in support for management of ongoing network operations, network optimization, QoE, and data analytics. Figure 12 shows the planned increases in the use of partners over the next three years. For example, 18 out of the 50 surveyed service providers are using partners today for management of ongoing network operations. An additional 16 have plans to use partners for this function in three years, representing 89% growth Ovum. All rights reserved. TMT intelligence informa 9

10 Figure 12: Usage of partners today and in three years In 3 years Now Implementation and rollout stage Network optimization QoE Management of ongoing network operations Cost-benefit analysis Network transformation planning and design Network data analytics Number of respondents While different types of partners are being used today, as shown in Figure 13, the use of business/ management consultants will increase significantly over the next three years, reflecting their lower usage today. Figure 14 examines the planned use of network equipment vendors, by region and by type, in three years. All of MEA's service providers have plans to use network vendors as partners, while more than 90% of Europe's service providers have plans to use business/management consultants. Figure 13: Types of partners used today and plans for use in three years In 3 years Today Business/management consultants Telecom software vendors IT services companies Network equipment vendors % of respondents using or expecting to use partners 10 TMT intelligence informa 2016 Ovum. All rights reserved.

11 Figure 14: Use of partners in three years by partner type, by region Asia-Pacific Europe Americas MEA % of respondents using partners Network equipment vendors IT services companies Software vendors Business/management consultants By type of service provider, integrated operators represent the highest partner usage group today and remain the highest usage group in three years, as shown in Figure 15. This is not surprising given their high ratings of challenges throughout the stages of network transformation. Figure 15: Overall use of partners today and in three years, by type of service provider Now In 3 years % of respondents using partners Telco - wireline only 61 Telco - integrated Cable operator 65 Recommendations for service providers Solve challenges externally and internally Service providers need to work more closely with vendors to solve selected challenges. For example, vendors can provide additional resources concerning: technology choices and their impact on future upgrades product readiness case study models and identifying potential areas of opex savings support for faster network build and rollout solutions for faster service and customer activation tools supporting network optimization assistance for keeping legacy networks up-to-date while migrating support for high-quality network software upgrades improved QoE-monitoring tools and models Ovum. All rights reserved. TMT intelligence informa 11

12 Service providers need to increase in-house expertise in selected areas, such as: project management skills for all stages of network transformation management of partners this becomes more important given plans to increase usage of partners. Since many service providers have noncompetitive peers, they can share information on their use of tools, solutions, and partners to support network transformation planning, implementation, and management. Appendix Methodology Over the summer of 2016, Ovum conducted detailed interviews with 50 directors and managers of wireline access networks around the world. The interview process included several filters to ensure that the interviewee was involved with the management of the wireline access network and involved with plans for or was knowledgeable of current transformations or upgrades. These service providers included both telco and cable operators. In some cases, the telco or cable operator was also a provider of wireless services. Selected responses are presented in the figures and discussions throughout this report. In addition, we used data such as the type of company (wireline telco, mixed telco [fixed and wireless], and cable) and the regional locations of the respondents to gain further insight into wireline access network transformations/upgrades. In addition to the survey results, this report includes selected Ovum data, forecasts, and analysis from syndicated research. The regional split of the 50 interviews is shown in Table 1. Table 1: Survey respondents by region Region Number of respondents Proportion of total (%) Asia-Pacific Europe (Eastern and Western) Americas (North and South & Central America) MEA (Middle East and Africa) 8 16 The split of the 50 interviews by type of provider is shown in Table 2. Table 2: Survey respondents by type of provider Provider type Number of respondents Proportion of total (%) Telco wireline only Telco integrated (wireline and mobile) 8 16 Cable both wireline and wireline and mobile Please note that due to the small number of cable operators, the wireline and wireline and mobile cable operators were combined for analysis. 12 TMT intelligence informa 2016 Ovum. All rights reserved.

13 Further reading Market Share Report: 2Q16 FTTx, DSL, and CMTS, TE (September 2016) Market Share Spreadsheet: 2Q16 FTTx, DSL + G.fast, and CMTS (Revenues), TE (August 2016) Market Share Spreadsheet: 2Q16 FTTx, DSL + G.fast, and CMTS (Units), TE (August 2016) Broadband Bundle Subscription Forecast: , TE (March 2016) Consumer Broadband Subscription and Revenue Forecast: , TE (February 2016) "Take-up of high-speed broadband is set to accelerate," TE (February 2016) "Broadband access equipment market to remain strong in 2016," TE (February 2016) Broadband Access Equipment Forecast (PON, xdsl, CMTS): , TE (February 2016) Telecom Network Services Evolution: Supporting CSP Transformation, TE (January 2016) Vendor Telecom Network Services Forecasts: , TE (January 2016) 2016 Trends to Watch: Wireline Broadband Access, TE (December 2015) Implementing Customer Interaction Analytics to Manage Customer Complaints, IT (October 2015) Service Provider PSTN Migration, TE (August 2015) Global Fixed Industry Survey: 2015, TE (May 2015) 2016 Ovum. All rights reserved. TMT intelligence informa 13

14 Ovum TMT intelligence ABOUT OVUM Ovum is a leading global technology research and advisory firm. Through its 180 analysts worldwide it offers expert analysis and strategic insight across the IT, telecoms, and media industries. Founded in 1985, Ovum has one of the most experienced analyst teams in the industry and is a respected source of guidance for technology business leaders, CIOs, vendors, service providers, and regulators looking for comprehensive, accurate and insightful market data, research and consulting. With 23 offices across six continents, Ovum offers a truly global perspective on technology and media markets and provides thousands of clients with insight including workflow tools, forecasts, surveys, market assessments, technology audits and opinion. In 2012, Ovum was jointly named Global Analyst Firm of the Year by the IIAR. For more details on Ovum and how we can help your company identify future trends and opportunities, please contact us at enquiries@ovum.com or visit To hear more from our analyst team join our Analyst Community group on LinkedIn and follow us on Twitter